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I have seen on some places that you can't use it from within the GUI of XP, and you have to boot from the install cd, but I'm not sure if this is true. You can certainly start it up, but I'm not sure if you can edit partitions (it's only my main PC that has XP, so I can't test it out unfortunately!).

You should be able to create the partitions you need with a bootable CD or Floppy and diskpart (C:\windows\system23\). Problem is, you'll need to re-install your OS one one of the partitions, or do a full backup prior to creating the new partitions. Kinda depends on your resources. It won't do the dynamic re-partition that PartitionMagic will do, and if you have XP running the current NTFS, you want to make sure you have the most current version of PartitionMagic before messing with the NTFS partitions.

It depends on how you want to configure your boot. If you have an NTFS partition and want to install Linux on another, Linux will create its own partition on the available unpartitioned space and install the lilo tool in the boot sector as well (I'm using my ancient experience with RedHat as reference--so somebody shoot me down if I'm wrong). If you have sufficient open space on the drive, you're ready to fly.